THE ECONOMIC OUTLOOK FOR OAKLAND COUNTY FINAL REPORT IN April 2015

Transcription

1 THE ECONOMIC OUTLOOK FOR OAKLAND COUNTY IN FINAL REPORT Prepared by George A. Fulton Donald R. Grimes Institute for Research on Labor, Employment, and the Economy Prepared for April 2015 A condensed version of this report was presented to the 30th annual Oakland County Economic Outlook Luncheon at the Troy Marriott Hotel on April 30, Sponsored by ten Oakland County organizations, the luncheon was hosted by the Oakland County Planning & Economic Development Services Division; Chase; and Oakland Community College. The full report is also available on the Web (updated each year) at or

2 TABLE OF CONTENTS INTRODUCTION... 1 REVIEW OF THE FORECAST FOR 2014: A REPORT CARD... 1 THE CURRENT STATE OF OAKLAND COUNTY S ECONOMY... 3 Employment Path of the Oakland County Economy... 3 Unemployment Path of the Oakland County Economy... 4 Oakland County Compared with U.S. Counties of Similar Size... 5 NATIONAL OUTLOOK: OAKLAND COUNTY OUTLOOK: CONCLUSION APPENDIX A: Forecast of Employment in Oakland County by Detailed Industry Division, APPENDIX B: Oakland County Compared with 35 U.S. Counties of Similar Size Indicator Values... 25

3 OAKLAND ECONOMIC OUTLOOK INTRODUCTION Many times over the past thirty years when we prepared our reports on the county, the message has been that the Oakland economy is on a roll. We are delivering the same message this year. In the current recovery since 2009, Oakland County s job growth at 12.8 percent has significantly outstripped the 6.0 percent rate recorded for the nation as well as the 8.0 percent rate posted for Michigan. From 2011 to 2013, Oakland created jobs at a scorching pace that trumped any other three-year period since the mid-1990s. The county is now into its sixth year of economic recovery, and it continues to be more broad-based across sectors, which bodes well for its sustainability. Moreover, Oakland s unemployment rate has been falling rapidly and much more rapidly than the nation s. As always, though, there are a few challenges that we are monitoring. First, job growth in 2014 moderated to the smallest annual increase during the current recovery, following the blistering pace of the prior three years. Second, and similar to the nation, inflationadjusted wage growth in the county has been sluggish in recent times. And third, the unemployment rate needs to come down further, because more residents need to be vested in the recovery. Each of these challenges poses questions that are addressed in this report. We assess whether the slowdown in 2014 portends a continuation of a slower recovery into 2015 and beyond, or not and if not, by how much will the pace pick up again, and which sectors will take the lead? The economic recovery will not be complete until we see some growth in real wages, and we consider when, or if, wage growth will gain any traction during the next three years. We then posit what our economic scenario through 2017 implies for further improvements in the unemployment rate. As has become our custom, we also assess how the county fares among counties of similar size around the nation according to indicators of future prosperity. In addition, we summarize the national outlook underlying our forecast of Oakland County. The local forecast is generated from a regional model constructed specifically for this study at the University of Michigan s Institute for Research on Labor, Employment, and the Economy. The regional model uses as inputs national economic indicators from the University s Research Seminar in Quantitative Economics in the Department of Economics. The Oakland model was constructed with the support of the Oakland County Planning & Economic Development Services Division. Before considering our perspective on how the Oakland County economy will evolve through 2017, we first take a look at 2014, to learn more about what kind of year it was and to gauge how well we anticipated developments as that year began. In the current recovery since 2009, Oakland County s job growth at 12.8 percent has signifi cantly outstripped the 6.0 percent rate recorded for the nation as well as the 8.0 percent rate posted for Michigan. The county is now into its sixth year of economic recovery, and it continues to be more broadbased across sectors, which bodes well for its sustainability. Moreover, Oakland s unemployment rate has been falling rapidly and much more rapidly than the nation s. There are a few challenges that we are monitoring: job growth in 2014 moderated to the smallest annual increase during the current recovery; infl ation-adjusted wage growth has been sluggish; and the unemployment rate needs to come down further. REVIEW OF THE FORECAST FOR 2014: A REPORT CARD A year ago (May 1, 2014), we presented our twenty-ninth economic outlook for Oakland County at the annual Economic Outlook Luncheon. Last year s forecast of employment, unemployment, and inflation for 2014 can now be compared with estimates of the outcome for that year, to see how accurate our forecast was. In last year s presentation, we forecast that the Oakland County economy would continue its solid recovery in 2014, but with the rate of growth moderating from a red-hot, but unsustainable, pace recorded over the prior three years. That is precisely what trans- 1

4 FINAL REPORT Last year, we forecast that the Oakland County economy would continue its solid recovery in 2014, but with the rate of growth moderating. That is precisely what transpired. pired. The recovery did continue, and private-sector job growth did slow, with a smaller contribution of 12,172 jobs in 2014 compared with 18,892 in Moreover, we came within an eyelash of nailing the magnitude of the job gain for Our forecast for 2014 was too low by 962 jobs in a private-sector work force of 646,000, a miss of only 0.1 percent, as reported in table 1. Table 1. Report Card: Track Record over the Years Year of Forecast % Forecast Error for Total Private Jobs Year of Forecast % Forecast Error for Total Private Jobs (Positive numbers indicate that the forecast was too high; negative numbers indicate that it was too low.) Average absolute forecast error : 1.7% Forecast 2014 Actual 2014 Unemployment rate 6.4% 7.2% Consumer inflation rate 1.1% 1.1% Forecast date: April 2014 The largest shortfall in our forecast was in health care. The recent sluggishness in hiring may refl ect some caution as providers adjust to changes in funding and in demand for health care under the Affordable Care Act. Although it s not part of the historical track record, we were also very close in forecasting government employment losses in With government added to the private sector, we were 895 jobs light in our forecast of the 11,812 total jobs that were created in Oakland in 2014, also a miss of 0.1 percent. We forecast job gains in all of the major industry divisions in 2014 save two, and we were correct in that prognostication with only two exceptions. The private education and health services sector lost jobs in 2014 contrary to our expectations, while information added jobs rather than suffering the small loss we anticipated. The largest shortfall in our forecast was in health care. After adding an average of 2,500 jobs per year in 2011 and 2012, job gains in health care dwindled to less than 100 per year in the past two years, extending the slump in growth beyond what we expected. The recent sluggishness in hiring may reflect some caution as providers adjust to changes in funding and in demand for health care under the Affordable Care Act. 2

5 OAKLAND ECONOMIC OUTLOOK Job gains most exceeded our expectations in manufacturing. Other than the auto industry, where our forecast was virtually spot-on, many of the other industries in manufacturing continued a solid pace of job growth in 2014 despite some slowdown, but not registering the more rapid deceleration that we foresaw. The observed and forecast numbers for the unemployment and local consumer price inflation rates in 2014 are reported at the bottom of table 1. Our forecast of the unemployment rate was too low, with the recorded rate of 7.2 percent for 2014 coming in 0.8 percentage points above the 6.4 percent rate we projected a year ago. Over half of the miss can be explained by a subsequent revision of the historical data for We hit the bull s eye on our forecast of the local inflation rate, with the outcome for 2014 of 1.1 percent matching our projection made a year ago. This is the second year in a row that we have found the center of the target on our inflation outlook. This review gives us a glimpse of an economy continuing a solid recovery in We need to take a more detailed look at the current state of the economy, however, before we anticipate developments beyond Our forecast of the unemployment rate was too low by 0.8 percentage points, over half of which can be explained by a data revision. THE CURRENT STATE OF OAKLAND COUNTY S ECONOMY Employment Path of the Oakland County Economy What we have learned from the report card for 2014, in addition to our favorable grade for forecast performance, is that the economy continued to grow in 2014, albeit at a slower pace than the previous three years of vigorous growth. As is verified in figure 1, Oakland s recovery, measured by net annual job growth, continues to put the severe decline that preceded it in the rear-view mirror. Oakland County suffered job losses from 2006 to 2009, hitting bottom in the unforgettable year of 2009 with a loss of 59,663 jobs. This low point was a culmination of the national Great Recession along with bankruptcy proceedings for both General Motors and Chrysler. Figure 1. Job Growth in Oakland County, Job Growth 40,000 30,000 20,000 10, ,000 5,801 1,113 24,412 24,865 18,146 11,812 Oakland s economy continued to grow in 2014, albeit at a slower pace than the previous three years of vigorous growth. The county economy hit bottom in the unforgettable year of 2009 with a loss of 59,663 jobs. This low point was a culmination of the national Great Recession along with bankruptcy proceedings for both General Motors and Chrysler. 20,000 30,000 40,000 50,000 18,494 20,433 60,000 70,000 59, * *Estimate 3

6 FINAL REPORT Oakland returned to positive growth for 2011 to 2013, the county economy s best performance over three years since the mid-1990s. The continuing recovery in Oakland is consistent with sustained expansion of the U.S. economy, a recovering local housing sector, and increasing Detroit Three vehicle sales all backed by the county s strong economic fundamentals and forward-looking policy initiatives. The top job producers in the recovery to date are professional and business services; trade, transportation, and utilities; and manufacturing. Government and fi nancial activities have lost jobs over the recovery period. The county s unemployment rate shrank every year from 2009 to 2014 with the recovery in the local labor market. By 2011, Oakland turned the corner to return to positive growth for a calendar year, creating 67,423 jobs in the three years from 2011 to 2013 a torrid pace of 3.5 percent, or 22,500 jobs per year. This was the county economy s best performance over three years since the mid-1990s. The recovery continued in 2014, but with total job growth moderating to 11,812 additions from its sizzling pace of the prior three years. The continuing recovery in Oakland is consistent with sustained expansion of the U.S. economy, a recovering local housing sector, and increasing Detroit Three vehicle sales. All of this is backed by the county s strong economic fundamentals and forward-looking policy initiatives. Among the major industry divisions in aggregate, the top job producers in the recovery to date have been professional and business services; trade, transportation, and utilities; and manufacturing. The two major industry divisions that have lost jobs over the recovery period are government and financial activities. The question is whether 2014 is simply a pause in an otherwise more rapid pace of job growth moving forward, or instead is a foreshadowing of a general slowdown in the economy into 2015 and beyond. This question is addressed in the local forecast section of the report. Next up is a consideration of the unemployed in the current recovery. Unemployment Path of the Oakland County Economy The performance of Oakland s economy can also be evaluated with unemployment as the measure. The path of the county s yearly unemployment rate from 2009 to 2014 is shown in figure 2. The rate for the United States is included for comparison. The unemployment rate for Oakland County peaked in 2009 at 13.0 percent. From then through 2014, the jobless rate shrank every year with the recovery in the local labor market, first slightly in 2010, to 12.5 percent, and then more sharply thereafter, moving down to 7.2 percent by The decline in the rates observed for 2010 and 2011 was due in part to discouraged workers leaving the labor force, which officially removes them from the count of the unemployed. By 2012, movements in the local labor force turned positive, as a greater number of residents sought out expanding job opportunities. Figure 2. Unemployment Rates for Oakland County and the United States, % 12% Oakland United States 10% 9.9 8% % 6.2 4%

7 OAKLAND ECONOMIC OUTLOOK Oakland s jobless rate has been higher than the U.S. rate so far during the recovery period, but the gap has narrowed from 3.7 percentage points in the nation s favor in 2009 to a much smaller one percentage point in The last time the county unemployment rate was lower than the U.S. rate was for a twelve-year stretch from 1992 to 2003, inclusive. We now turn to our traditional comparison of Oakland County with counties of similar size around the United States on a variety of economic measures. Oakland County Compared with U.S. Counties of Similar Size As Oakland County continues to emerge from the structural and cyclical declines of recent years, it s informative to gauge how the county s economic foundation is positioned, as this can foreshadow future economic success. We ranked Oakland and thirtyfive other counties of similar size in the United States on a series of measures that we judge to be indicators of future economic prosperity. The rankings are shown in table 2; the data underlying the rankings are provided in appendix B. The counties of comparable size to Oakland had populations between 900,000 and 1.6 million in 2014; Oakland s population was million. Many of these counties are among the most prosperous in the nation and among the small group of U.S. counties, including Oakland, that have the AAA bond rating with multiple rating agencies. The measures used in this analysis are: (1) share of the population aged 25 to 64 (prime working-age population) with at least an associate s degree in 2013; (2) share of the population aged 17 and under who lived within families whose income was below the poverty level in 2013; (3) median family income adjusted for the cost of living 1 in 2013; (4) share of persons aged 65 and older with income at least five times the poverty line in 2013; and (5) share of employed county residents working in professional and managerial occupations in A lower number for the rank indicates a better position for the measure among the thirtysix counties; i.e., a rank of 1 is best and 36 is worst. Oakland County ranks between 5 and 16 across the five measures. Oakland is especially noteworthy for its median family income adjusted for the cost of living, where it ranks 5th, 2 and for its share of residents employed in professional and managerial occupations, where it ranks 7th. The thirty-six counties are also ordered by a summation of all of the rankings. This is not meant to be a rigorous measure of overall ranking, but it is at least suggestive of relative standing. Oakland ranks in the top ten overall among the thirty-six counties on this basis, an impressive standing considering that a number of these counties house some of the healthiest local economies in the nation. Whether we assess Oakland County with respect to how it is positioned in key economic fundamentals across all regions of the United States, or more restrictively here among many of the elite local economies, it is hard not to see the county thriving as time goes on. Oakland s jobless rate has been higher than the U.S. rate so far during the recovery period, but the gap has narrowed from 3.7 percentage points in 2009 to one percentage point in The last time the county unemployment rate was lower than the U.S. rate was for a twelve-year stretch from 1992 to 2003, inclusive. Oakland was ranked among thirty-fi ve other counties of similar size in the United States on a series of measures judged to be indicators of future economic prosperity. Oakland is especially noteworthy for its median family income adjusted for the cost of living, and for its share of residents employed in professional and managerial occupations. Oakland ranks in the top ten overall among the thirty-six counties, an impressive standing considering that a number of these counties house some of the healthiest local economies in the nation. 1 Our cost of living calculation is based upon the Bureau of Economic Analysis, Regional Price Parity Indices for Metropolitan Areas, extended to 2013 using differences in the regional consumer price index from the national consumer price index, and adjusted to specific counties using the difference between the median gross rent in the county and the metropolitan area from the 2013 American Community Survey. 2 Without adjusting for the cost of living, the median family income in Oakland County would rank 11th. 5

8 FINAL REPORT 6 Table 2. Oakland County Compared with 35 U.S. Counties of Similar Size* (Ranking based on selected indicators of prosperity) High-Income Associate s Median Persons Population Degree Child Family Aged 65 Managerial, Sum of Rank County State 2014 or More Poverty Income** or Older Professional Rankings of Sum Fairfax VA 1,137, Montgomery MD 1,030, Middlesex MA 1,570, Nassau NY 1,358, Bergen NJ 933, Westchester NY 972, Wake NC 998, DuPage IL 932, Oakland MI 1,237, Fairfield CT 945, Hennepin MN 1,212, Contra Costa CA 1,111, Fulton GA 996, Travis TX 1,151, Suffolk NY 1,502, St. Louis MO 1,001, Allegheny PA 1,231, Honolulu HI 991, Prince George s MD 904, Mecklenburg NC 1,012, Salt Lake UT 1,091, Franklin OH 1,231, Erie NY 922, Palm Beach FL 1,397, Hillsborough FL 1,316, Cuyahoga OH 1,259, Sacramento CA 1,482, Pinellas FL 938, Shelby TN 938, Orange CA 1,253, Pima AZ 1,004, Milwaukee WI 956, Marion IN 934, Fresno CA 965, Philadelphia PA 1,560, Bronx NY 1,438, *All counties in the United States with a population between 900,000 and 1,600,000 in **Adjusted for the cost of living. Source: Compiled by Donald Grimes and George Fulton, University of Michigan, using data from the American Community Survey Population data are from the Census Bureau population estimates program as of April 2015.

9 Oakland operates within a broader economic environment that has ramifications for our outlook for the county. As we extend our analysis into the future, we start with a summary of the national outlook. OAKLAND ECONOMIC OUTLOOK NATIONAL OUTLOOK: The future course of the Oakland County economy depends in part on the overall health of the national economy. Forecasts of economic indicators for the U.S. economy in are from a release on March 18, 2015, by Daniil Manaenkov and Matthew G. Hall of the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan, who also provided internally generated extensions of the forecast for The national outlook is summarized in figures 3 5 by two economic indicators key to the Oakland economy. The best single measure of the U.S. economy is inflation-adjusted, or real, Gross Domestic Product (GDP): all of the goods, services, and structures produced in the economy. Growth in real GDP averaged 2.4 percent in 2014, as shown in figure 3, and is forecast to ramp up to average 2.9 percent for 2015 and 3.2 percent for 2016, the first annual reading above 3 percent since The more rapid growth reflects a pickup in consumer spending and a more solid recovery in residential construction activity, countered somewhat by an increasing drag on growth from net exports. Real GDP growth then tapers off a bit in 2017, to 2.9 percent. The U.S. economy is projected to add 3.1 million payroll jobs during 2015, slightly more than during 2014, making 2015 the best year for job creation since Job gains then moderate to 2.6 million during 2016 and 2.2 million during The unemployment rate continues to decline, falling from a calendar-year average of 6.2 percent recorded for 2014 to yearly averages of 5.3 percent for 2015, 5.0 percent for 2016, and 4.6 percent for 2017 (see figure 10). Another important input to the outlook for Oakland is the national vehicle sales forecast. From a longer-term perspective, total sales of U.S. light vehicles cars, minivans, sport utility vehicles, crossovers, and pickup trucks were in the range of 16 to 17+ million Growth in real GDP averaged 2.4 percent in 2014, and is forecast to ramp up to average 2.9 percent for 2015 and 3.2 percent for 2016, the fi rst annual reading above 3 percent since The U.S. economy is projected to add 3.1 million payroll jobs during 2015, making 2015 the best year for job creation since The unemployment rate continues to decline, falling from a calendar-year average of 6.2 percent recorded for 2014 to 4.6 percent for Figure 3. Growth in U.S. GDP, % 3.0% % 2.0% % 1.0% 0.5% 0% RSQE: March

10 FINAL REPORT Total sales of U.S. light vehicles cars, minivans, sport utility vehicles, crossovers, and pickup trucks were in the range of 16 to 17+ million units sold annually from 1999 to 2007, then retreated to 10.4 million units by Sales have susequently increased each year, checking in at 16.4 million units sold in 2014, the highest annual level in eight years. units sold annually from 1999 to 2007, as shown in figure 4. Sales then retreated to 10.4 million units by 2009, and have increased in excess of one million units each year since then until 2013, reaching 15.5 million units in that year. The industry crossed the 16 million line in 2014, checking in at 16.4 million units sold, the highest annual level in eight years. In the forecast, we continue moving upward from there. Pent-up demand continues to be a significant factor in the climb: the average age of vehicles on the road today is still at record levels, vehicle sales remain historically low relative to the driving-age population, and the potential exists for higher participation of younger drivers in the market as the economy continues to improve. Figure 4. U.S. Light Vehicle Sales, Millions '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 RSQE: March 2015 Total unit sales of U.S. light vehicles are forecast to rise to 16.9 million in 2015, 17.2 million in 2016, and 17.5 million by The projection for 2017 would set an all-time record for a calendar year. Detroit Three sales are projected to move up progressively from 7.3 million units in 2014 to 7.8 million by 2017, a slower rate of increase compared with recent history. From a shorter-term perspective, total unit sales of U.S. light vehicles are forecast to rise to 16.9 million in 2015 from 16.4 million posted in 2014, and to increase further to 17.2 million in 2016 and 17.5 million by 2017, as shown in figure 5. The sales forecast for 2016 would be the highest annual level in sixteen years, and the projection for 2017 would set an all-time record for a calendar year. The continuing increase anticipated for light vehicle sales in rides largely on the back of strong truck sales. In 2016, vehicle sales are projected to be the highest since 2000, another period of cheap gasoline and rising truck popularity. We see the Detroit Three s share of the light vehicle market drifting up from 44.3 percent in 2014 to 44.9 percent by The projections for total sales and the Detroit Three s share of that market, taken together, yield our outlook for Detroit Three sales, which move up progressively from 7.3 million units in 2014 to 7.8 million by This path reflects a slower rate of increase over the next three years compared with recent history. Detroit Three sales rose by 900,000 units over the two years from 2012 to 2014, almost twice the cumulative gain of 500,000 units we are forecasting over the next three years combined. 8

11 Figure 5. U.S. Light Vehicle Sales, Total vs. Detroit Three, OAKLAND ECONOMIC OUTLOOK Millions of Units Total RSQE: March 2015 Detroit Three Annual % Detroit Three market share We now turn to our view of the prospects for the Oakland County economy through OAKLAND COUNTY OUTLOOK: The economic outlook for Oakland County through 2017 is measured using information on employment, real wages, unemployment, and inflation. First, we evaluate the county s prospects for job growth in total, putting that in context with recent job market developments. The Oakland County economy is now entering its sixth year of recovery since the recession s low point at the end of (The annual data indicate a small loss for 2010, but this is an artifact of calculating job changes based on calendar-year averages, which masks the upturn in employment at the beginning of 2010.) Over the period 2009 to 2014, the county s job growth (12.8 percent) greatly outpaced both the nation s (6.0 percent) and the state s (8.0 percent). Following the deceleration to 11,812 job additions in 2014, we project the pace of growth to pick up again in 2015, increasing to 14,389 jobs, as shown in figure 6. Job growth continues to pick up the pace over the following two years, with the county adding 16,106 jobs in 2016 and 18,537 in 2017, extending the span of the current recovery to eight years. That growth path generates an increase of 49,032 jobs over the next three calendar years a brisk pace averaging 2.3 percent per year from 2014 to Oakland s recovery continues to be supported by a U.S. economy that expands through 2017 and by increasing Detroit Three vehicle sales, as well as by the county s strong economic fundamentals. The Oakland County economy is now entering its sixth year of recovery since the recession s low point at the end of Over the period 2009 to 2014, the county s job growth greatly outpaced both the nation s and the state s. Following a deceleration in job additions in 2014, the pace of growth is projected to pick up again in Job growth continues to pick up the pace over the following two years, extending the span of the current recovery to eight years. 9

12 FINAL REPORT Figure 6. Job Growth in Oakland County, ,000 30,000 20,000 10,000 24,412 24,865 18,146 11,812 14,389 16,106 18, ,000 5,801 1,113 20,000 30,000 40,000 50,000 18,494 20,433 From the spring of 2000 to the state s low point in the third quarter of 2009, the county lost 163,314 jobs. Then the recovery followed: from the summer of 2009 to the end of the published data in the third quarter of 2014, Oakland gained 88,439 jobs. From then to the end of 2017, the county is forecast to create an additional 53,775 jobs, thus replenishing 87 percent of the jobs lost from the spring of 2000 to the summer of 2009, returning the county to the job levels it posted in the second half of 2001, about a year and a half into the nine-year decline. In contrast, the state as a whole is forecast to fall, by the end of 2017, well short of the employment level enjoyed at its peak in the spring of 2000, a job recovery rate of 69 percent compared with Oakland s 87 percent. 60,000 70,000 59, * *Estimate The current recovery is put in broader historical context by considering how much ground the Oakland economy is making up from 2009 through 2017 relative to what it lost in the preceding decline a challenging benchmark considering the severity of the downturn. The quarterly path of total jobs from the start of 2000 to the end of 2017, adjusted for seasonal variations, is shown in figure 7. We include the same profile for Michigan, with both the county and state employment paths indexed to equal 100 in the second quarter of 2000, representing Michigan s previous peak employment level. Using index values permits us to compare on the same figure two regions with widely different employment scales. To clarify: an index value of 90 indicates that employment in the relevant period is 90 percent of its level in the base period (in this case, the second quarter of 2000), that is, it s 10 percent less than the base period value. An index value of 110 indicates a level of employment that is 10 percent higher than its level in the base period. From the spring of 2000 to the state s low point in the third quarter of 2009, the county lost 163,314 jobs. Then the recovery followed: from the summer of 2009 to the end of the published data in the third quarter of 2014, Oakland gained 88,439 jobs. From then to the end of 2017, we are forecasting that the county will create an additional 53,775 jobs, thus cumulating to 142,214 job additions from the bottom of the downturn through 2017 (88, ,775). That would replenish 87 percent, or about seven in eight, of the jobs lost from the spring of 2000 to the summer of 2009, returning the county to the job levels it posted in the second half of 2001, about a year and a half into the nine-year decline. In contrast, the state as a whole is forecast to fall, by the end of 2017, well short of the employment level enjoyed at its peak in the spring of 2000, a job recovery rate of 69 percent compared with Oakland s 87 percent. The employment decline was more precipitous in Oakland (a drop of 21.3 index points) than for the state (down 18.3 index points) from the spring of 2000 to the summer of Oakland s recovery, however, has been more robust through the end of the published data in the third quarter of 2014, with the county gaining 11.6 index points compared with 7.6 index points for the state. The gap between the pace of recovery then continues to widen in the county s favor through

13 Figure 7. Total Jobs in Oakland County vs. Michigan, Seasonally Adjusted, First Quarter of 2000 to Fourth Quarter of 2017 Index (2000q2 = 100) OAKLAND ECONOMIC OUTLOOK Forecast Oakland Michigan The employment data for Oakland County shown in figure 7 are converted to annual averages and extended back to 1990 in figure 8; the values are indexed so that the level of employment in 2000 is set equal to 100. Figure 8 also includes similarly scaled employment index values for three broad industry categories: (1) traditional blue-collar industries such as manufacturing, construction, mining, and transportation; (2) highereducational-attainment service-providing industries such as government, health services, professional services and corporate headquarters, wholesale trade, financial activities, and information services; and (3) service-providing industries that tend to employ workers with lower educational attainment such as retail trade, leisure and hospitality services, business services such as temporary help, and repair and personal services. Figure 8. Employment Growth in Oakland County by Selected Industry Groups, 1990 to 2017 Index (2000 = 100) Forecast Blue-collar industries Higher-education service industries Lower-education service industries Total

14 FINAL REPORT There was a sharp decline in employment in the blue-collar industries between 1990 and 1991, corresponding to the recession. Employment in lower-educationalattainment service industries also declined then, as did employment in total, whereas employment grew in higher-educational-attainment service industries. Between 1991 and 2000, however, employment in total and for all three industry categories increased at about the same rate. Despite the relatively rapid growth in jobs in the blue-collar industries since the end of the most recent recession, the story of employment in Oakland County since 2000 has been the shift in concentration from blue-collar jobs to higher-educational-attainment service industry jobs. The average infl ation-adjusted wage in Oakland peaked in 1999 at $57,597, a 19.8 percent gain from Over the period 1999 to 2013, the average real wage in Oakland tended to decline, reaching a low of $54,758 in 2013, 4.9 percent below its peak level in There was a sharp decline in employment in the blue-collar industries between 1990 and 1991, corresponding to the recession. Employment in lower-educationalattainment service industries also declined then, as did employment in total, whereas employment grew in higher-educational-attainment service industries. Between 1991 and 2000, however, employment in total and for all three industry categories increased at about the same rate. After 2000, job growth among the industry categories diverged sharply. Employment in the blue-collar industries declined by more than half between 2000 and 2010 (from an index value of 100 to 48.6). Employment in the higher-education service industries increased slightly between 2000 and 2002, but then declined slowly between 2002 and With the onset of the Great Recession, employment in this category fell by 7.4 percent between 2007 and Employment in the lower-education service industries fell by 17.5 percent from 2000 to 2010, closely patterning job movements in total. From 2010 to 2014, employment in all three industry categories increased steadily, with slightly faster growth in the blue-collar industries as is typical during the earlier stages of recovery from a severe recession. Over the forecast period from 2014 to 2017, however, the most rapid growth occurs in the higher-education service industries. By 2017, employment in the blue-collar category will still be slightly below its 2007 level, and well below its 2000 level. In contrast, employment in the higher-education service category was almost at its 2000 level in 2014, and by 2017 it will be 6.9 percent above that level. Employment in the lower-education service category will still be slightly below its 2000 level by Despite the relatively rapid growth in jobs in the blue-collar industries since the end of the most recent recession, the story of employment in Oakland County since 2000 has been the shift in concentration from blue-collar jobs to higher-educational-attainment service industry jobs, a trend we see continuing beyond our forecast period. The average real wage (in 2013 dollars) in Oakland County between 1990 and 2017 is presented in figure 9 for the same industry groups as in the previous analysis of employment. This is the first time we have forecast the average wage in the county, but given the recent focus on this measure, we have included it in this year s study. 3 The average inflation-adjusted wage in Oakland peaked in 1999 at $57,597, a 19.8 percent gain from Wage gains were widespread across almost all industries, with increases over those nine years of 14.7 percent in the blue-collar industries, 22.3 percent in the higher-education service industries, and 16.5 percent in the lower-education service industries. Over the period 1999 to 2013, the average real wage in Oakland tended to decline, reaching a low of $54,758 in 2013, 4.9 percent below its peak level in The average wage in the blue-collar industries declined a little more than in the other industry categories, but almost all industries saw a decline. We estimate that the average real wage grew by 1.7 percent in 2014, the blue-collar industries leading the way with a gain of 2.4 percent. This was largely due to strong wage growth in construction and some of the non-motor-vehicle manufacturing industries, as labor shortages in some of the skilled trades caused firms to increase pay and hours worked. The average real wage also increased at a healthy pace in the higher-education service category, but it fell by 0.2 percent in the lower-education service group. 3 The wage series are averages per worker, and do not include variations in hours worked, a measure that is not available to us in the detail we would require. This is likely less of a consideration over the longer term. 12

15 Figure 9. Average Real Wage in Oakland County by Selected Industry Groups, 1990 to 2017 OAKLAND ECONOMIC OUTLOOK $75,000 $70,000 $65,000 $60,000 $55,000 $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 Blue-collar industries Higher-education service industries Lower-education service industries Total Forecast Over the forecast period from 2014 to 2017, we see the average real wage growing by 4.6 percent, reaching $58,266 (in 2013 dollars), 1.2 percent above This growth reflects both the bonus from a negative rate of inflation in 2015 (see figure 11), and a tightening of the labor market due to a declining unemployment rate (see figure 10) that should put more pressure on wages. 4 We anticipate that the real wage gains over the next three years will be spread across all major industry groups, with the greatest gains accruing to the higher-education service industries (4.9 percent), and the smallest increases occurring among the lower-education service category (1.7 percent). It is possible that the recently announced wage increases by some of the larger retail chain stores such as Walmart, Marshalls, and T.J. Maxx could generate a more favorable outcome for the lower-education service industries, but competitive market pressures could also limit those gains. The projected job movements in total shown in figure 6 are distributed among twentyeight major industry divisions in table 3, and into 235 finer industry divisions in appendix A. The detail for the employment forecast presented in table 3 includes, for each industry, the level of employment in 2014 (including three quarters of preliminary data); the forecast change for 2015, 2016, and 2017; and the cumulative change over the threeyear period The table also includes the average annual wage for each industry category in 2013 (as does appendix A). 5 4 Current wage growth data have also been biased downward in two ways: (1) baby boomers entering retirement and being replaced by younger workers at lower salaries, and (2) the long-term unemployed accepting lower wages. 5 The historical employment data are from the Bureau of Labor Statistics Quarterly Census of Employment and Wages. The average annual wage includes both full- and part-time workers, weighted equally. Consequently, the average wages for industries that employ a disproportionately large number of part-time workers, such as retail trade and leisure and hospitality, are much lower than they would be if the wages were calculated only for full-time workers. Over the forecast period from 2014 to 2017, we see the average real wage growing by 4.6 percent, reaching $58,266 (in 2013 dollars), 1.2 percent above This growth refl ects both the bonus from a negative rate of infl ation in 2015, and a tightening of the labor market due to a declining unemployment rate that should put more pressure on wages. We anticipate that the real wage gains over the next three years will be spread across all major industry groups, with the greatest gains accruing to the higher-education service industries, and the smallest increases occurring among the lower-education service category. 13

16 FINAL REPORT Table 3. Forecast of Employment in Oakland County by Major Industry Division, * Average Annual Estimate Forecast Employment Change Wage TOTAL JOBS (Number of persons) 690,377 14,389 16,106 18,537 49,032 $54,758 (Annual percentage change) (1.7) (2.1) (2.3) (2.6) N.A. TOTAL GOVERNMENT 44, ,197 TOTAL PRIVATE 645,825 14,421 16,087 18,330 48,838 55,011 GOODS-PRODUCING 83,710 2,277 2,114 2,229 6,620 68,872 Natural resources, mining, construction 22,189 1, ,078 62,550 Manufacturing 61,520 1,140 1,154 1,248 3,542 71,087 Fabricated metal products 11, ,296 Machinery 10, ,729 Transportation equipment (motor vehicles) 19, ,353 86,268 Other manufacturing 19, ,103 60,382 PRIVATE SERVICE-PROVIDING 562,116 12,144 13,972 16,102 42,218 52,993 Trade, transportation, and utilities 122,584 1,996 2,207 2,636 6,838 48,824 Wholesale trade 35, ,350 83,652 Retail trade 76, ,218 3,072 30,723 Transportation, warehousing, and utilities 10, ,416 56,564 Information 16, ,180 Financial activities 48, ,107 2,611 73,979 Finance and insurance 33, ,217 86,076 Real estate and rental and leasing 15, ,394 45,524 Professional and business services 181,495 5,277 6,286 7,051 18,615 66,709 Professional, scientific, and technical 103,864 4,868 4,612 5,122 14,602 78,536 Management of companies and enterprises 13, , ,836 Administrative support and waste management 63, ,249 1,499 2,919 38,652 Private education and health services 107,935 1,546 2,325 2,811 6,681 46,326 Private education services 10, ,729 Health care and social assistance 96,967 1,377 2,104 2,513 5,994 46,994 Leisure and hospitality 62,136 2,052 1,752 1,812 5,615 18,759 Other services 21, ,147 Unclassified 1, ,497 *Some subtotals do not add to totals due to rounding of annual average computations. 14

17 OAKLAND ECONOMIC OUTLOOK The government sector is forecast to lose 32 jobs in 2015 following an estimated loss of 360 in Employment in the government sector has declined every year since 2005, but it finally turns around to add 20 jobs in 2016 and 207 in 2017, as the sector continues to adapt to its stringent financial challenges. By the end of our forecast period in 2017, the government sector accounts for only 6.1 percent of the jobs in the county, down from a peak of 8.3 percent in 2009 (when private-sector employment was sharply and temporarily reduced in the recession); this is its lowest share since at least 1990, when our data series starts. Job gains in the private sector are expected to accelerate in 2015, increasing by 14,421 jobs compared with 12,173 in Job growth continues to accelerate in 2016 and 2017, bringing the total to 48,838 jobs from 2014 to 2017, a solid increase averaging 2.5 percent per year. The aggregate industry category of natural resources, mining, and construction gains 3,078 jobs over the next three years, all of them in construction; the very small natural resources and mining components lose a handful of jobs. The construction industry benefits from a revival in residential construction after struggling through a long dry spell. All components of the construction industry enjoy relatively strong job growth, with the greatest number of additional jobs (994) being created among building equipment contractors such as plumbing, electrical, and HVAC contractors, as well as residential building contractors (648). The manufacturing sector gains 1,140 jobs in 2015, 1,154 in 2016, and 1,248 in While this represents solid job growth for the sector, these gains are down substantially from the rate of growth between 2010 and 2014, when manufacturing was adding an average of 3,127 jobs per year. (The slowing job growth is a natural progression as the business cycle matures.) By 2017, the manufacturing sector accounts for only 8.8 percent of the jobs in the county, down from 16 percent in 1990 and 14 percent in We expect that its share will continue to slip beyond Leading the early stages of the recovery was transportation equipment (motor vehicle) manufacturing, which added 3,037 jobs (21.8 percent) in 2011 and 2,290 (13.5 percent) in Growth slowed to only 53 jobs in 2013 and 251 in We see some acceleration in growth over the following three years 391 jobs in 2015, 457 in 2016, and 506 in 2017 an average annual growth rate of 2.3 percent. By 2017, employment in transportation equipment manufacturing will still be 10.1 percent below 2008 levels, and will account for only 2.8 percent of the jobs in the county, down from 6 percent in While factory jobs in the auto industry are no longer leading the recovery, the industry s white-collar component will continue to expand at much-above-average growth rates. Other components of manufacturing outside of the auto industry have grown much more rapidly than autos recently, collectively adding 2,199 jobs in 2013 and 1,654 in We are forecasting that the pace of these gains will slow over the next three years, cumulating to 2,188 job additions between 2014 and The manufacturing industries that see the largest job gains over the forecast period are fabricated metals (713), machinery (372), chemicals (325), and plastics (171). The manufacturing sector excluding motor vehicles accounts for a larger share of total employment in 2017 than does motor vehicle manufacturing: 6 percent versus 2.8 percent. Indeed, some of these manufacturing industries are forecast to be at or near peak employment levels in 2017, including chemicals, machine shops, metal coating and heat treating, electrical equipment, and medical equipment. Employment in the government sector has declined every year since 2005, but it fi nally turns around to add jobs in 2016 and 2017, as the sector continues to adapt to its stringent fi nancial challenges. The construction industry benefi ts from a revival in residential construction after struggling through a long dry spell. By 2017, the manufacturing sector accounts for only 8.8 percent of the jobs in the county, down from 16 percent in 1990 and 14 percent in We expect that its share will continue to slip beyond While factory jobs in the auto industry are no longer leading the recovery, the industry s white-collar component will continue to expand at muchabove-average growth rates. 15

18 FINAL REPORT Wholesale trade sees accelerating job growth over the next three years, with the industry paying relatively high average wages. Within this industry division, motor vehicle and parts merchant wholesalers see very strong growth. Retail trade adds jobs over the next three years, over onethird of them in motor vehicle and parts dealers. Relatively strong growth in trucking and other transportation services refl ects strength in manufacturing production, construction activity, and consumer spending. Newspaper and book publishers lose jobs between 2014 and 2017, but software publishing is expected to boom. The fi nance and insurance industry shows weak growth over the forecast period, especially in banking, but real estate sees strong growth. Between 2009 and 2014, employment in professional services exploded, and it is expected to continue to grow although at a more subdued pace. This aggregate industry category is the heart of the knowledge economy, and in Oakland County it is closely identifi ed with the motor vehicle industry. 16 Wholesale trade 6 sees accelerating job growth over the next three years, accumulating to a gain of 2,350 jobs, with the industry paying relatively high average wages ($83,652 in 2013). Within this industry division, motor vehicle and parts merchant wholesalers see very strong growth (1,087 jobs) from 2014 to 2017, averaging 6.5 percent per year. This industry has enjoyed robust growth over the past quarter-century, with employment tripling between 1990 and Retail trade, a much larger and generally lower-paying sector than wholesale trade, adds 3,072 jobs over the next three years, an average growth rate of 1.3 percent per year. Over one-third of these gains are in motor vehicle and parts dealers, which increases by 1,243 jobs over the forecast period (4.1 percent per year). This industry, unlike most of retail, pays above-average wages ($58,057 in 2013). Other retail industries adding jobs over the forecast horizon include clothing stores (1,221 jobs) and building material and garden supply stores (638). Furniture stores, food and beverage stores, gasoline stations, and discount department stores all lose jobs between 2014 and Technology, especially the Internet, is reducing the number of workers needed for each retail transaction. Transportation services and utilities add 1,416 jobs over the next three years. The relatively strong growth in trucking and other transportation services (1,352 jobs) reflects continued expansion of manufacturing production (even as employment gains slow), a rebound in construction activity, and increased local consumer spending as real wage and job growth pick up. The information sector adds 965 jobs over the next three years (2 percent per year). Newspaper and book publishers lose 192 jobs between 2014 and 2017, reducing employment in this industry to less than one-half of its peak employment realized in On the other hand, the software publishing industry in Oakland is expected to boom, with jobs growing by 9.9 percent per year between 2014 and 2017, a cumulative gain of 693 jobs over the period. The finance and insurance industry contributes 197 jobs in 2015, followed by accelerating growth in 2016 and Over the three-year forecast period, however, this amounts to an average annual growth rate of only 1.2 percent, the weakest performance of any major private-sector industry. The weakness is concentrated in banking, which adds only 117 jobs from 2014 to 2017, as well as in insurance carriers, where the net gain is a single job. Securities and investment brokers and insurance agents contribute jobs at a healthier clip over the forecast period, adding 387 and 308 jobs, respectively. The real estate and rental and leasing industry sees strong growth over the next three years (1,394 jobs or 3 percent per year), as the real estate industry continues to recover. Note that most real estate agents are self-employed and thus are not included in these statistics. Between 2009 and 2014, employment in professional services exploded by 27,818 jobs (6.4 percent per year). This aggregate industry category is the heart of the knowledge economy, and in Oakland County it is closely identified with the motor vehicle industry. We expect that this industry category will continue to grow over the next three years, albeit at a somewhat more subdued pace, adding 14,602 jobs (4.5 percent per year). Job growth in professional services over the forecast period is concentrated in testing laboratories (5,727 jobs) and engineering services (4,843). Along with company management, which adds 1,094 jobs over the next three years, these industries form the core 6 Wholesalers sell merchandise to other businesses and normally operate from a warehouse or office. These warehouses and offices are characterized by having little or no display of merchandise. In addition, neither the design nor the location of the premises is intended to solicit walk-in traffic. U.S. Census Bureau NAICS industry definition.